The tone for munis was mixed Monday as they mostly ignored broader weakness in U.S. Treasuries while equities sold off as the markets continue to weigh what’s to come from Federal Reserve officials later this week in Jackson Hole.
Triple-A yields rose one to three basis points, depending on the curve, while U.S. Treasuries saw the largest losses (eight to 11 basis points) seven-years and in. The 10-year UST surpassed 3%, the first time since mid-July.
Muni-UST ratios fell slightly across the curve as a result with the two- and three-year ratios coming in around 64% to 66%. The five-year was at 69%, the 10-year at 82% and the 30-year at 96%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 70%, the 10 at 85% and the 30 at 94% at a 4 p.m. read.
Secondary trading was mixed Monday without providing strong movement in any direction.
While munis sold off last week, Jason Wong, vice president at AmeriVet Securities, noted that trading continues to be light historically as the third week August only had roughly $34.35 billion in trades.
“Trading has been very light due to the push back from investors against valuations in munis, more particularly, the short-end of the markets,” he noted. Bids-wanteds, though, were up slightly to $5.7 billion last week compared to $5.2 billion from the prior week. “Bids-wanted continues to be high, as many mutual funds continue to see outflows from their funds,” Wong said.
Losses for August climbed last week, with month-to-date returns in the red at negative 1.40% for the Bloomberg muni index, high-yield seeing 0.99% losses, taxables at 2.01% losses and the impact index losing 1.70%.
“August has been a complete 180 compared to July as we are on pace to have negative returns for the month,” Wong said. “This is a stark reversal from the prior month where we saw returns of 2.64%. This is simply the market correcting itself as the front end has gotten too expensive this year.”
The spreads for the tax-exempt muni credit indices all tightened last week, but the movement in the indices “does not fully reveal the movement in the market,” noted CreditSights’ Pat Luby and John Ceffalio in a weekly report.
For example, CreditSights notes the spread for the single-A index tightened by nine basis points to +17 from +26 as of August 12, but the spreads for the BVAL single-A GO benchmark five-, 10- and 30-year yields all widened versus the triple-A, while the revenue bond yields for the same tenors all tightened.
In addition, thanks to the performance of tax-exempts relative to investment-grade corporates, muni yields “offer only a small window of value for corporate investors subject to the 21% federal corporate income tax.”
“Long-duration single-A muni yields are slightly higher than comparably rated corporate bond after-tax yields, but an investor would have to extend beyond 20 years before the muni yields would make sense,” they said.
They noted,net flows into muni mutual funds were positive (barely) for the latest reporting week, marking the third consecutive week of positive but declining flows.
“Given the anemic flows into muni mutual funds and exchange traded funds and the lack of value in tax-exempts for insurance companies, banks and other corporate investors, we expect tax-exempt spreads will be biased wider this week,” Luby and Ceffalio said.
Secondary trading was mixed
New York City Transitional Finance Authority 5s of 2023 traded at 2.25% versus a 2.01% a week ago. New York City GOs 5s of 2023 at 2.22%. Baltimore County 5s of 2024 at 2.24%.
Maryland 5s of 2025 at 2.26%-2.22%. Prince George’s County, Maryland, 5s of 2025 at 2.25%-2.24%. Utah 5s of 2025 at 2.22%.
Connecticut 5s of 2027 at 2.43%-2.42%. Mecklenburg County, North Carolina, 5s of 2029 at 2.34% versus 2.13% Tuesday. Maryland 4s of 2029 at 2.48% versus 2.43% Friday.
Maryland 5s of 2034 at 2.79%. California 5s of 2035 at 2.88% versus 2.79% Thursday. New York Dorm PITs 5s of 2036 at 3.33%. Washington 5s of 2041 at 3.34%-3.33%. California 5s of 2042 at 3.27%.
Triborough Bridge and Tunnel senior revs 5s of 2051 at 3.80%. LA DWP 5s of 2052 at 3.53%, the same as Friday.
AAA scales
Refinitiv MMD’s scale was unchanged at a 3 p.m. read: the one-year at 2.15% and 2.16% in two years. The five-year at 2.20%, the 10-year at 2.48% and the 30-year at 3.11%.
The ICE AAA yield curve was cut two to three basis points: 2.18% (unch) in 2023 and 2.20% (+2) in 2024. The five-year at 2.23% (+2), the 10-year was at 2.54% (+3) and the 30-year yield was at 3.08% (+3) at a 4 p.m. read.
The IHS Markit municipal curve was unchanged: 2.13% in 2023 and 2.16% in 2024. The five-year was at 2.19%, the 10-year was at 2.47% and the 30-year yield was at 3.12% at a 3 p.m. read.
Bloomberg BVAL was cut one to two basis points in spots: 2.19% (+1) in 2023 and 2.18% (unch) in 2024. The five-year at 2.18% (+2), the 10-year at 2.46% (+1) and the 30-year at 3.14% (+1) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 3.322% (+8), the three-year was at 3.365% (+11), the five-year at 3.171% (+8), the seven-year 3.120% (+7), the 10-year yielding 3.028% (+5), the 20-year at 3.483% (+4) and the 30-year Treasury was yielding 3.232% (+1) at the close.
Primary to come:
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $987.250 million of tax-exempt future tax secured subordinate bonds, consisting of $980.340 million of Fiscal 2023 Series B, Subseries B-1 serials 2023-2038 and $6.910 million, Fiscal 2023 Series C, Subseries C-1, serial 2022. Ramirez & Co.
Charlotte, North Carolina, (Aaa/AAA/AAA/) is set to price Wednesday $467.030 million of water and sewer system revenue bonds, consisting of 451.075 million of exempts, Series 2022A, serials 2023-2042, terms 2047 and 2052 and $15.995 million of taxable, Series 2022B, serials 2023-2025. Wells Fargo Bank.
The Minneapolis-St. Paul Metropolitan Airports Commission, Minnesota, (/A+/A+/) is set to price Thursday $385.595 million of subordinate airport revenue bonds, consisting of $149.405 million of governmental/non-AMT bonds, Series 2022A, serials 2023-2031, terms 2047 and 2052 and $236.190 million of private activity/AMT bonds, Series 2022B, serials 2023-2042, term 2047. Wells Fargo Bank.
The Del Valle Independent School District, Texas, (/AAA//) is set to price Wednesday $280 million of PSF-guaranteed unlimited tax school building bonds, Series 2022, serials 2024-2042, term 2047. Siebert Williams Shank & Co.
The Alamo Community College District, Texas, (Aaa/AAA//) is set to price Thursday $244.170 million of maintenance tax notes, Series 2022, serials 2023-2030. Siebert Williams Shank & Co.
The Pennsylvania Housing Finance Agency (Aa1/AA+//) is set to price Wednesday (retail order on Tuesday) $201.945 million of single-family mortgage revenue bonds, consisting of $178.675 million of non-AMT social bonds, Series 2022-140A, terms 2042, 2047, 2050 and 2052 and $23.270 million of taxable, Series 2022-140B, term 2042. Barclays Capital.
The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price Tuesday $160 million of non-AMT mortgage revenue bonds, Series 2022 B, serials 2024-2034, terms 2037, 2042, 2047, 2052 and 2052. Citigroup Global Markets.
The Economic Development Authority of Loudoun County, Virginia, (Aaa/AAA//) is set to price Tuesday $160 million of Howard Hughes Medical Institute Issue revenue bonds, Series 2022A. J.P. Morgan Securities.
Richmond, Virginia, (/AA-//) is set to price Thursday $156.285 million of taxable pension refunding bonds, Series 2022, serials 2026-2037, term 2044. Loop Capital Markets.
The County of Sacramento Metro Air Park Community Facilities District No. 2000-1, California, is set to price Wednesday $121.210 million of Special Tax Bonds, Series 2022, serials 2023-2037, terms 2042 and 2047. Stifel, Nicolaus & Co.
The Dormitory Authority of the State of New York (Aa3//AA-/) is set to price Thursday $111.795 million of school district revenue bond financing program revenue bonds, Series 2022C, serials 2023-2041. RBC Capital Markets.
Competitive:
The Delaware Transportation Authority is set to sell $228.910 million of transportation system senior revenue bonds, Series 2022, at 10:30 a.m. eastern Tuesday.
Suffolk County, New York, is set to sell $143.100 million of public improvement serial bonds, 2022 Series C, at 11:45 a.m. Tuesday.
The Indiana Finance Authority (Aaa/AAA/AAA/) is set to $250 million of green state revolving fund program bonds, Series 2022B, at 11:15 a.m. eastern Wednesday.